INTERNET: Tencent in High-Powered Mapping Investment with Europe’s Here

Bottom line: Tencent’s new investment in Nokia’s former mapping unit Here reflects the Chinese herd mentality to pile into new technologies, but also looks like a relatively savvy way to enter the space by pairing with experienced partners.

Internet giant Tencent (HKEx: 700) doesn’t want to be left behind in the race with rivals Baidu (Nasdaq: BIDU) and Alibaba (NYSE: BABA) into self-driving new energy cars that may someday dominate the streets of both China and the world. That appears to be the message from the latest headlines, which have Tencent involved in a somewhat complicated deal that will give it a small stake in a high-powered mapping company that counts car giants BMW, Daimler and Audi as its main investors.

This particular news comes just a week after a related headline that saw Tencent link with the operator of an industry park in Shanghai for connected vehicles, in one of its first major moves into the self-driving car space. (English article) It also comes about a week after headlines appeared reporting that telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063) was getting into the space, and the chairman of home appliance Gree (Shenzhen: 000651) also made a similar investment.

Any regular readers will know I’m throwing out this laundry list as a prelude to one of my major themes, namely the sheep-like mentality for Chinese companies to jump on the latest investing craze. Others who have already piled in on this trend include Alibaba and Baidu, as well as struggling online video site LeEco (Shenzhen: 300104), which may now be regretting that decision.

In this case the Chinese companies are following the lead of US leaders like Google (Nasdaq: GOOG) and Tesla (Nasdaq: TSLA), which have probably done extensive studies and developed proprietary technology to enter the race. But I can say with near certainty that the Chinese companies have done far less due diligence, and instead are buying existing technology from other companies.

Now that I’ve vented my frustration with this recurrent Chinese cattle-like mentality, let’s take a closer look at Tencent’s latest investment in the European mapping company Here. (Chinese article) The whole deal is a bit convoluted, and will see Tencent co-invest with 2 partners into a Dutch company called Siway. Siway will then buy 10 percent of Here, with Tencent paying 44 million euros for 1.8 percent and NavInfo 97 million euros for 4 percent. GIC will hold the remaining 4.2 percent, though no purchase price was given.

I’ll admit I wasn’t immediately aware of Here’s pedigree, but a little research shows the company was once a prize possession of former smartphone giant Nokia and was previously at the center of a heated global bidding war. Here ended up being bought last year for 2.8 billion euros by a consortium of German automakers that included BMW, Audi and Mercedes-Benz parent Daimler.

New China Joint Venture

Adding to the intrigue, Tencent’s investment partners include the Shenzhen-listed NavInfo (Shenzhen: 002405) and Singapore’s GIC sovereign wealth fund. Here has issued an announcement featured prominently on its own webpage, saying the new alliance will also see it form a joint venture with NavInfo to bring its mapping services to China. (company announcement)

As part of the tie-up, Tencent will explore the use of Here’s mapping and location platform services in its own products both in China and internationally. That could mean we may soon see mapping services show up on Tencent’s popular WeChat and QQ social networking platforms, giving current industry leader Baidu a run for its money.

A final intriguing twist to this particular story came just last month, when media reported that BMW was ending its driverless car alliance with Baidu, one of the earliest entrants to the space. (English article) Thus one could perhaps interpret this new investment as a sign that BMW could be preparing to shift its allegiances in China to Tencent, since both companies are now co-investors in Here.

At the end of the day, I still am somewhat skeptical of Tencent’s move into driverless cars, which looks like it’s coming late and really isn’t very related to any of the company’s core competence in games and social networking. The mapping play looks a little better, since Tencent could quickly popularize a good mapping product on WeChat and QQ. All that said, I do continue to like Tencent’s strategy of working closely with more experienced partners like BMW and Here, who can increase its chances of success.